Federal Budget 2017 can help close Ontario’s prosperity gap

March 23, 2017

The federal government recently tabled its 2017 Budget, with a focus on increasing inclusiveness and spurring innovation. The Budget also introduced new programs, structures, and strategies that will affect Ontario in the near future. We review how the Budget announcements will help the province close its $2,740 prosperity gap. The prosperity gap is made up of four components: age profile, utilization, intensity, and productivity, and we review the impact of the federal Budget on each of the four elements.

Age Profile: Bringing talent into Ontario

Age profile is the percentage of working age Ontarians (15-64). Although Ontario currently has a large proportion of working age individuals compared to our peers, the budget forecasts that our advantage will deteriorate as more baby boomers reach the age of retirement.

Immigration can help stem this tide. Bringing in skilled talent helps businesses make smart investments and scale up their operations. The federal government introduced targeted measures to bring in skilled workers. As part of its $8 million Global Skills Strategy, it set a two week goal for processing visas and work permits for those working for high-growth companies. This is in addition to the introduction of short-term work or study permits for stays of less than 30 days.

Utilization: Helping Ontarians find employment

Ontario’s utilization rate – the percentage of the working age population that are employed – is comparable to our peers.

The Budget specifically targeted Indigenous peoples and youth to help bring more of them into the labour force. Over $200 million of funding was committed to providing Indigenous peoples with opportunities for education, skill development, and employment. Whether these initiatives will be enough to encourage more labour market participation will only be seen in years to come. The Youth Employment Strategy ($395.5 million over 3 years), along with the experiential learning and employment pathway programs for youth, are a step in the right direction to creating more employment opportunities.

Finally, the federal Budget was skills-heavy, allocating $1.8 billion over six years to expand Labour Market Development Agreements (LMDAs). The LMDAs are designed to help workers upgrade their skills, gain work experience, or start a business. This is in addition to the $900 million over six years for the consolidated Workforce Development Agreements. These Agreements assist those of working age find employment in other industries or simply get back to work.

Intensity: Decreasing involuntary part-time work

Intensity is the average number of hours worked per employee in a year.

While Ontario fares well in this area, the main drag on intensity is the number of involuntary part-time workers. Women are disproportionately affected due to caregiving responsibilities for children or family members. Raising the national female labour participation rate to that of Québec’s could generate $13 billion to Canadian GDP. The federal government is investing $7 billion in subsidies over 10 years to potentially create an additional 40,000 subsidized child care spaces. How many of those spaces will come to Ontario is currently unknown.

Unfortunately, jurisdictions in Ontario have some of the highest child care costs in the country. Creating additional spaces does not address the issue of affordability, even with the Canada Child Benefit. Critics argue that Canada needs universal child care, not just a National Framework on Early Learning and Childcare (as well as one for Indigenous peoples). We will continue to look at this issue, as we believe it is a key policy lever going forward.

The EI caregiver benefit is a step in the right direction. But the problem remains that workplaces are not flexible enough. The federal government is seeking to change this within its regulated workplaces and hopefully other businesses follow suit. Additionally, the $27.5 million reallocated to create the Targeted Employment Strategy for Newcomers does not address systemic issues in the foreign credential recognition process, which is needed to create a streamlined path into the Ontario labour force.

Productivity: Raising output per hour worked

Low productivity - GDP per hour worked - is the main driver of Ontario’s prosperity gap and the province has failed to catch up with its peers. However, innovation is one of the best solutions. Innovation ranges from small initiatives such as streamlining an administrative process to large technology disruptors such as creating a new app that can give consumers access to information faster. In both cases, innovations help workers produce more value or output without having to work longer hours.

The Innovation and Skills Plan invests up to $950 million to support business-led development of "superclusters." According to the Budget, superclusters have a number of advantages including increasing collaboration and connections between cluster actors, the spreading of business risk, and moving innovation towards commercialization and exporting. The Plan will focus on six key industries: advanced manufacturing, agri-food, clean tech, digital industries, health/bio-sciences, and clean resources. In addition, emerging industries (stem cells, quantum computing, and artificial intelligence) are receiving funding for research. Both initiatives demonstrate that the federal government is prioritizing the development of clusters. Ontario is also a leader in these industries and would benefit from this funding. The Institute has advocated for this since its inception because clusters can drive economic growth. When firms in close proximity compete with one another, this spurs innovation between cluster actors. The funding of research across a multitude of sectors will spur the innovation to be commercialized.

Note: The Institute worked with the Brookfield Institute for Innovation + Entrepreneurship on a policy brief outlining recommendations for the implementation of this Plan, which will be released shortly.

The federal government is delivering these initiatives by spending beyond its revenues, creating a $28.5 billion deficit in 2017-18. Deficits will continue but are expected to gradually decrease. This is against a backdrop of realized GDP growth of 1.9 percent in 2017 which is anticipated to stagnate to 1.7 percent in 2020; unemployment rates of 6.9 percent decreasing to 6.6 percent by 2020. Overall, the plans laid out in the 2017 federal Budget are well-intentioned towards helping Ontario close its prosperity gap. How much of the funding will be committed to Ontario – and whether the province will receive its fair share – is yet to be determined.